EFI Reports Record First Quarter Revenue Of $189M, Up 10%

FREMONT, Calif., April 16, 2014 (GLOBE NEWSWIRE) -- Electronics For Imaging, Inc. (Nasdaq:EFII), a world leader in customer-focused digital printing innovation, today announced its results for the first quarter of 2014.

For the quarter ended March 31, 2014, the Company reported record first quarter revenue of $188.7 million, up 10% compared to first quarter 2013 revenue of $171.4 million. First quarter 2014 non-GAAP net income was $20.4 million or $0.42 per diluted share, up 29% and 27%, respectively, compared to non-GAAP net income of $15.8 million or $0.33 per diluted share for the same period in 2013. GAAP net income was $10.1 million or $0.21 per diluted share, up 21% and 24%, respectively, compared to $8.4 million or $0.17 per diluted share for the same period in 2013.

"The EFI team kicked off 2014 with another very strong quarter, delivering revenue and profitability above our expectations," said Guy Gecht, CEO of EFI. "With upcoming product innovations across the portfolio we expect to see solid demand throughout the year as our technology continues to help customers around the world drive growth and productivity in their businesses."

EFI will discuss the Company's financial results by conference call at 2:00 p.m. PDT today. Instructions for listening to the conference call over the Web are available on the investor relations portion of EFI's website at www.efi.com .

About EFI

EFI™ ( www.efi.com ) is a worldwide provider of products, technology, and services leading the transformation of analog to digital imaging. Based in Silicon Valley with offices around the globe, the company's powerful integrated product portfolio includes digital front-end servers; superwide, wide-format, label, and ceramic inkjet presses and inks; production workflow, web-to-print, and business automation software; and office, enterprise, and mobile cloud solutions. These products allow users to produce, communicate and share information in an easy and effective way, and enable businesses to increase their profits, productivity, and efficiency.

Safe Harbor for Forward Looking Statements

Certain statements in this press release are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements other than statements of historical fact including words such as "anticipate", "believe", "consider", "continue", "estimate", "expect", and "plan" and statements in the future tense are forward looking statements. The statements in this press release that could be deemed forward-looking statements include statements regarding EFI's strategy, plans, expectations regarding its revenue growth, product portfolio, productivity, future opportunities for EFI and its customers, demand for products, and any statements or assumptions underlying any of the foregoing.

Forward-looking statements are subject to certain risks and uncertainties that could cause our actual future results to differ materially, or cause a material adverse impact on our results. Potential risks and uncertainties include, but are not necessarily limited to, unforeseen expenses; the difficulty of aligning expense levels with revenue; management's ability to forecast revenues, expenses and earnings; any world-wide financial and economic difficulties and downturns; adverse tax-related matters such as tax audits, changes in our effective tax rate or new tax legislative proposals; the unpredictability of development schedules and commercialization of products by the leading printer manufacturers and declines or delays in demand for our related products; changes in the mix of products sold; the uncertainty of market acceptance of new product introductions; intense competition in each of our businesses, including competition from products developed by EFI's customers; challenge of managing asset levels, including inventory and variations in inventory levels; the uncertainty of continued success in technological advances; the challenges of obtaining timely, efficient and quality product manufacturing and supply of components; litigation involving intellectual property rights or other related matters; our ability to successfully integrate acquired businesses; the uncertainty regarding the amount and timing of future share repurchases by EFI and the origin of funds used for such repurchases; the market prices of EFI's common stock prior to, during and after the share repurchases; the compliance with the new requirements regarding the "conflict minerals," if they are found to be used in our products, and any other risk factors that may be included from time to time in the Company's SEC reports.

The statements in this press release are made as of the date of this press release. EFI undertakes no obligation to update information contained in this press release. For further information regarding risks and uncertainties associated with EFI's businesses, please refer to the section entitled "Risk Factors" in the Company's SEC filings, including, but not limited to, its annual report on Form 10-K and its quarterly reports on Form 10-Q, copies of which may be obtained by contacting EFI's Investor Relations Department by phone at 650-357-3828 or by email at investor.relations@efi.com or EFI's Investor Relations website at www.efi.com .

Use of Non-GAAP Financial Information

To supplement our condensed consolidated financial results prepared under generally accepted accounting principles, or GAAP, we use non-GAAP measures of net income and earnings per diluted share that are GAAP net income and GAAP earnings per diluted share adjusted to exclude certain recurring and non-recurring costs, expenses and gains. A reconciliation of the adjustments to GAAP results for the three months ended March 31, 2014 and 2013 is provided below. In addition, an explanation of how management uses non-GAAP financial information to evaluate its business, the substance behind management's decision to use this non-GAAP financial information, the material limitations associated with the use of non-GAAP financial information, the manner in which management compensates for those limitations, and the substantive reasons management believes that this non-GAAP financial information provides useful information to investors is included under "About our Non-GAAP Net Income and Adjustments" after the tables below.

These non-GAAP measures are not in accordance with or an alternative to GAAP and may be materially different from other non-GAAP measures, including similarly titled non-GAAP measures, used by other companies. The presentation of this additional information should not be considered in isolation from, as a substitute for, or superior to, net income or earnings per diluted share prepared in accordance with GAAP.

Electronics For Imaging, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

Three Months Ended

March 31,

2014

2013

Revenue

$ 188,688

$ 171,359

Cost of revenue

85,713

77,499

Gross profit

102,975

93,860

Operating expenses:

Research and development

33,073

31,067

Sales and marketing

36,304

32,736

General and administrative

16,847

13,698

Amortization of identified intangibles

4,870

4,927

Restructuring and other

1,094

1,978

Total operating expenses

92,188

84,406

Income from operations

10,787

9,454

Interest and other expense, net

(126)

(2,848)

Income before income taxes

10,661

6,606

Benefit from (provision for) income taxes

(579)

1,756

Net income

$ 10,082

$ 8,362

Fully Diluted EPS calculation

Net income

$ 10,082

$ 8,362

Net income per diluted common share

$ 0.21

$ 0.17

Shares used in diluted per share calculation

48,357

47,986

Electronics For Imaging, Inc.

Reconciliation of GAAP Net Income to Non-GAAP Net Income

(in thousands, except per share data)

(unaudited)

Three Months Ended

March 31,

2014

2013

Net income

$ 10,082

$ 8,362

Amortization of identified intangibles

4,870

4,927

Stock based compensation – Cost of revenue

532

469

Stock based compensation – Research and development

2,235

1,867

Stock based compensation – Sales and marketing

1,411

888

Stock based compensation – General and administrative

4,286

3,420

Restructuring and other

1,094

1,978

General and administrative:

Acquisition-related transaction costs

505

19

Change in fair value of contingent consideration

(557)

(262)

Litigation settlements

115

—

Sublease income related to our deferred property sale

—

(720)

Depreciation expense related to our deferred property sale

—

410

Interest and other expense, net

Interest expense related to our deferred property sale

—

880

Tax effect of non-GAAP adjustments

(4,201)

(6,487)

Non-GAAP net income

$ 20,372

$ 15,751

Non-GAAP net income per diluted common share

$ 0.42

$ 0.33

Shares used in per share calculation

48,357

47,986

Electronics For Imaging, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

March 31,

December 31,

2014

2013

Assets

Cash and cash equivalents

$ 149,690

$ 177,084

Short-term investments

165,994

177,957

Accounts receivable, net

144,378

130,717

Inventories

70,802

68,345

Other current assets

48,998

46,461

Total current assets

579,862

600,564

Property and equipment, net

85,337

84,829

Goodwill

236,708

233,203

Intangible assets, net

65,586

68,722

Other assets

14,688

39,066

Total assets

$ 982,181

$ 1,026,384

Liabilities & Stockholders' equity

Accounts payable

$ 70,451

$ 75,132

Accrued and other liabilities

122,534

121,084

Income taxes payable

3,241

4,654

Total current liabilities

196,226

200,870

Imputed financing obligation

11,708

11,500

Contingent and other liabilities

5,671

6,815

Deferred tax liabilities

6,425

6,738

Long term taxes payable

7,234

33,011

Total liabilities

227,264

258,934

Total stockholders' equity

754,917

767,450

Total liabilities and stockholders' equity

$ 982,181

$ 1,026,384

Electronics For Imaging, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months Ended

March 31,

2014

2013

Cash flows from operating activities:

Net income

$10,082

$ 8,362

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

7,277

7,158

Deferred taxes

(5,557)

(5,366)

Tax benefit from employee stock plans

6,092

1,885

Excess tax benefit from stock-based compensation

(6,095)

(2,013)

Stock-based compensation

8,463

6,644

Provisions for inventory obsolescence

1,620

1,842

Provisions for bad debts and sales-related allowances

71

1,337

Contingent consideration payment related to business acquired

—

(618)

Other non-cash charges and adjustments, net of effect of acquired companies

77

306

Changes in operating assets and liabilities

(16,144)

3,081

Net cash provided by operating activities

5,886

22,618

Cash flows from investing activities:

Purchases of short-term investments

(12,281)

(12,288)

Proceeds from sales and maturities of short-term investments

23,634

9,860

Purchases, net of proceeds from sales, of property and equipment

(7,664)

(2,269)

Acquisition of SmartLinc, Inc., net of cash acquired

(2,344)

—

Net cash provided by (used for) investing activities

1,345

(4,697)

Cash flows from financing activities:

Proceeds from issuance of common stock

10,196

7,621

Purchases of treasury stock and net share settlements

(48,449)

(11,567)

Repayment of debt assumed through business acquisitions

(494)

(354)

Contingent consideration payments related to businesses acquired

(2,000)

(349)

Excess tax benefit from stock-based compensation

6,095

2,013

Net cash used for financing activities

(34,652)

(2,636)

Effect of foreign exchange rate changes on cash and cash equivalents

27

(1,030)

Increase (decrease) in cash and cash equivalents

(27,394)

14,255

Cash and cash equivalents at beginning of quarter

177,084

283,996

Cash and cash equivalents at end of quarter

$149,690

$ 298,251

Electronics For Imaging, Inc.

Revenue by Operating Segment and Geographic Area

(in thousands)

(unaudited)

Three Months Ended

March 31,

Revenue by Operating Segment

2014

2013

Industrial Inkjet

$ 87,944

$ 80,303

Productivity Software

31,693

27,729

Fiery

69,051

63,327

Total

$ 188,688

$ 171,359

Revenue by Geographic Area

Americas

$ 100,981

$ 93,897

EMEA

60,541

50,046

APAC

27,166

27,416

Japan

5,817

7,219

APAC, ex Japan

21,349

20,197

Total

$ 188,688

$ 171,359

About our Non-GAAP Net Income and Adjustments

Use of Non-GAAP Financial Information

To supplement our condensed consolidated financial results prepared in accordance with GAAP, we use non-GAAP measures of net income and earnings per diluted share that are GAAP net income and GAAP earnings per diluted share adjusted to exclude certain recurring and non-recurring costs, expenses, and gains.

We believe that the presentation of non-GAAP net income and non-GAAP earnings per diluted share provides important supplemental information regarding non-cash expenses and significant recurring and non-recurring items that we believe are important to understanding financial and business trends relating to our financial condition and results of operations. Non-GAAP net income and non-GAAP earnings per diluted share are among the primary indicators used by management as a basis for planning and forecasting future periods and by management and our Board of Directors to determine whether our operating performance has met specified targets and thresholds. Management uses non-GAAP net income and non-GAAP earnings per diluted share when evaluating operating performance because it believes the exclusion of the items described below, for which the amounts and/or timing may vary significantly depending on the Company's activities and other factors, facilitates comparability of the Company's operating performance from period to period. We have chosen to provide this information to investors so they can analyze our operating results in the same way that management does and use this information in their assessment of our business and the valuation of our Company.

Use and Economic Substance of Non-GAAP Financial Measures

We compute non-GAAP net income and non-GAAP earnings per diluted share by adjusting GAAP net income and GAAP earnings per diluted share to remove the impact of recurring amortization of acquisition-related intangibles and stock-based compensation expense, as well as restructuring related and non-recurring charges and gains and the tax effect of these adjustments. Such non-recurring charges and gains include acquisition-related transaction expenses and the costs to integrate such acquisitions into our business, changes in the fair value of contingent consideration, litigation settlement charges, and imputed interest expense and depreciation, net of accrued sublease income and capitalized interest related to the sale of our corporate headquarters facility and related land.

Non-recurring charges and gains, including: -- Restructuring and other consists of: - Restructuring charges incurred as we consolidate the number and size of our facilities and, as a result, reduce the size of our workforce. - Acquisition-related executive deferred compensation costs, which are dependent on the continuing employment of a former shareholder of an acquired company, are being amortized on a straight-line basis. - Expenses incurred to integrate businesses acquired during the periods reported. -- Acquisition-related transaction costs associated with businesses acquired during the periods reported and anticipated transactions. -- Changes in fair value of contingent consideration. Our management determined that we should analyze the total return provided by the investment when evaluating operating results of an acquired entity. The total return consists of operating profit generated from the acquired entity compared to the purchase price paid, including the final amounts paid for contingent consideration without considering any post-acquisition adjustments related to changes in the fair value of the contingent consideration. Because our management believes the final purchase price paid for the acquisition reflects the accounting value assigned to both contingent consideration and to the intangible assets, we exclude the GAAP impact of any adjustments to the fair value of acquisition-related contingent consideration from the operating results of an acquisition in subsequent periods. We believe this approach is useful in understanding the long-term return provided by our acquisitions and that investors benefit from a supplemental non-GAAP financial measure that excludes the impact of this adjustment. -- Imputed net expenses related to sale of building and land. On November 1, 2012, we sold the 294,000 square foot building located at 303 Velocity Way in Foster City, California, which at that time served as our corporate headquarters, along with approximately four acres of land and certain other assets related to the property, to Gilead for $179.7 million. We used the facility until October 31, 2013, for which period rent was not required to be paid. This constituted a form of continuing involvement that prevented gain recognition until the fourth quarter of 2013. Until we vacated the building, the proceeds from the sale were recognized as deferred proceeds from property transaction on our Condensed Consolidated Balance Sheet. Imputed interest expense and depreciation, net of accrued sublease income, of $0.6 million was accrued during the three months ended March 31, 2013, related to the deferred property transaction.

Tax effect of non-GAAP adjustments -- Effective in the first quarter of 2014 and continuing for the balance of the year, we will be using a constant non-GAAP tax rate of 19%, which we believe reflects the long term average tax rate based on our international structure and geographic distribution of revenue and profits. The long-term average tax is calculated in accordance with the principles of ASC 740, Income Taxes, after excluding the tax effect of the non-GAAP items described above, to estimate the non-GAAP income tax benefit (provision) in each jurisdiction in which we operate. -- We have excluded the following from our non-GAAP net income for the three months ended March 31, 2013: - Tax charge of $0.3 million resulting from the filing of tax returns by foreign subsidiaries for periods prior to their acquisition by EFI. - Tax benefit of $3.2 and $0.2 million from the retroactive renewal of both the 2012 U.S. federal research and development tax credit and certain international tax provisions, respectively, on January 2, 2013. The tax benefit for these items had been previously recognized in our non-GAAP net income for the year ended December 31, 2012.